Question

Explain whether monetary policy can be changed more quickly than fiscal policy and why. During COVID19 pandemic both fiscal and monetary polices were used by many governments. Describe whether there were significant time differences in the use of either policy and why the difference if any.

Answer 1

Answer - The monetary policy can be changed much more quickly than the fiscal policy. The monetary policy just involves the Open market purchase or sale and change in interest rates which can be made very quickly as no permission is required from government. But in fiscal policy , the government has to present and pass the bills and ordinances , it has to go through long procedures which take much more time than monetary policy.

As a result of policies in Covid , open market operations were almost carried out daily totalling $ 200 billion. The interest rates were immediately dropped. But the Cares Act as an expansionary fiscal policy announced on 27 march which is 1 month later than the spread of virus began rigourously. Hence the fiscal policy took more time because the amount of stimulus and other provisions of the act had to be defined and passed by congress. The implementation also takes time.